OPEC expects tighter oil market amid rising tensions

Organisation of the Petroleum Exporting Countries (OPEC), yesterday, said it expects global oil market to tighten further in the coming months amid renewed geopolitical tensions, even as the cartel kept its 2019 oil demand growth figure steady, as the “upside potential for global economic growth in 2019 remains limited.”

In its monthly oil market report released Tuesday, OPEC estimates that demand for its crude will average 30.58 million barrel daily (mb/d) in 2019, a fall of 1.01mb/d on the year, suggesting that global oil inventories will decline sharply from current levels.

But the report also showed a surprise rise in crude inventories in the last few months, suggesting that there may still be need for the producer group to continue its output cuts to balance the market.

According the report, Nigeria’s production hit 1.8mbpd last month, higher than March’s figure of 1.7mbpd, but the group’s 14 members pumped 30.031mb/d in April, compared with 30.034mb/d in March, according to OPEC secondary sources.

This is 549,000 b/d lower than the call on its own crude. Demand for OPEC crude in 2018 averaged 31.59mb/d.

This report comes after key oil infrastructure and transit routes in the Middle East have been hit by attacks of sabotage in the past few days.

Tensions over threats to oil flows from the Middle East escalated Tuesday, after an attack halted flows through Saudi Arabia’s main oil transport pipeline to terminals and refineries on the Red Sea.

OPEC also noted that non-OPEC upstream sanctioning activity appears set to reach an all-time high of $26.5 billion this year, marking the start of a new cycle of investment.

“The total capital expenditure for non-OPEC’s tight oil – which consists mainly of the US – will be around $124 billion in 2019,” it said.

OPEC also warned that non-OPEC growth in 2019, is likely to be slower than last year amid expected weaker global economic growth and due to costly logistical constraints especially in the US.

“North American producers will continue facing pressure by shareholders demanding capital discipline and a return on their investments, and this could come at the expense of increased disposable capex,” the report added.

OECD commercial oil inventories rose marginally to 2.88 billion barrels in March, and were 22.8 million barrels above the five-year average, according to OPEC’s report.

In December, stocks were 28 million barrels above the five-year average, showing that the producer group has made progress in balancing the market.

US total commercial oil stocks rose by 26.5 million barrels to stand at 1.225 billion barrels in April, according to preliminary data.

OPEC’s research and analysis arm kept its estimate for global oil demand growth steady at 1.21 million b/d.

Global oil demand is now estimated to average 99.94mb/d this year, compared with 98.73 million b/d in 2018, OPEC said. The group pegged 2018 global oil demand growth at 1.41mb/d.

Total non-OPEC supply for the year is now projected to average 64.52 million b/d, with the UK, Brazil, Russia, Australia, Ghana, South Sudan and Sudan forecast to be the main drivers for this year’s growth. Mexico, Kazakhstan, Norway, Indonesia and Vietnam are projected to see the largest declines.